Apple tax ruling Q&A: Investigations into tech giant’s Irish tax affairs finally came to a conclusion

Your questions on the Apple tax ruling answered.  

How did the Apple ruling come about?

In 2013, Ireland’s tax arrangements with foreign multinationals came under scrutiny when a subcommittee of the US Senate held hearings into the tax affairs of a number of US firms.

Apple boss Tim Cooke was among those who were called to answer questions before the committee which was chaired by senators John McCain and Carl Levin. Ireland was dubbed a tax haven by the committee and its low corporation rate was criticised.

Mr McCain even prompted laughter from the public gallery when he put it to Mr Cooke: “Given the tax rate that you are paying in Ireland I am sure you have a very close relationship.”

In June 2014, the European Commission began an indepth probe, looking at whether Ireland’s arrangement with Apple amounted to State aid. It extended its inquiry to all member states in December 2014.

What did the investigation focus on?

The investigation focused on tax rulings issued by the Revenue Commissioners to Apple in 1991 and 2007. These rulings determined the level of taxation Apple would have to pay. The investigation further looked at two subsidiaries, Apple Operations Europe (AOE) and Apple Sales International (ASI).

The commission found that almost all sales profits recorded by these two Irish incorporated companies were internally attributed to a “head office”.

The commission’s assessment showed that these “head offices” existed only on paper, they had no employees and could not have generated such profits.

These profits allocated to the “head offices” were not subject to tax in any country under specific provisions of the Irish tax law. These laws are no longer in force.

The report revealed that ASI, recorded profits of $25bn in 2014, but it paid less than $10m in tax.

What did the probe find?

The commission, which published its initial ruling in August, has found that Ireland granted undue tax benefits to Apple worth €13bn.

The final report published yesterday found Ireland offered “selective treatment” to Apple, which other companies did not receive.

They claim that Ireland substantially and artificially lowered the tax paid by Apple here since 1991.

This is illegal under EU State aid rules, because it allowed Apple to pay substantially less tax than other businesses.

As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of ASI, the commission has ruled.

What next?

Ireland has now been ordered to recover the back taxes which the commission has ruled Apple owes.

The commission can order recovery of illegal state aid for a 10-year period preceding the commission’s first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13bn, plus interest.

However, the Irish Government disputes this and has appealed this ruling.

Is Ireland the only country being targeted by the European Commission?

No. In October 2015, the commission ruled that Luxembourg had granted selective tax advantages to Fiat while the Netherlands had granted similar advantages to Starbucks.

In January of this year, the commission also deemed that selective tax advantages granted by Belgium to around 35 multinationals under its “excess profit” tax scheme was illegal under EU state aid rules.

The commission is also currently carrying out two other ongoing investigations into tax rulings given to Amazon and McDonald’s in Luxembourg.